Co-Signing Or Co-Borrowing

Today, it isn’t unusual for someone to approach family members or friends for help in obtaining a loan as borrowers must meet strict income and credit requirements.

Before agreeing to help (especially when the other person will be making all the loan payments), you should understand your obligations and the implications if he fails to make the payments.

Are you a co-signer or co-borrower? In both cases, your good credit and income are used to help obtain the loan, and you are legally obligated to make the loan payments if the other person fails to make them. If you fail to do so, you can be sued by the lender and your credit history could be damaged. 

However, there’s one important difference. If the loan is for a house and you are the co-borrower, you will be listed on the property title as a co-owner. A co-signer is not listed on the title and has no legal claim to the property.

Before agreeing to co-sign or co-borrow a loan, have a lawyer draw up an agreement between you and your brother. This agreement should include the following details:

·        Who is responsible for making the payments? How much and how frequently are payments due?

·        What happens if your brother fails to make payments and that responsibility falls on your shoulders? Will your brother sign ownership interest in the property over to you?

·        If your brother is relying on your credit history, will the loan be, after a certain period of time, refinanced to remove you from being a party to the loan?